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Financial Information Needed for Calculating Child and Spousal Support

This article outlines typical information used for determination of income for both child and spousal support, most of which is specified in Section 21 of the Federal Child Support Guidelines. This information will usually be needed to complete P.E.I. court Form 70 I “Financial Statement.” Other provinces will have a similar form.  This article is meant as a checklist of information, including descriptive information to help you understand the requirements, which can be complex and time consuming to prepare. However, this list varies by individual circumstance and may not be all-inclusive or appropriate in all situations. You should rely on your Chartered Financial Divorce Specialist (CFDS) or a financial advisor trained in family law for your specific requirements.

Section references to the Federal Child Support Guidelines are provided for your use. In addition, the Appendix I provides an excerpt from legislation setting out the obligations of the applicant (subsection (1)) and the obligation of the respondent (subsection (2)) to provide these requirements.)

Much of this information is required for the three most recent years to allow unusual fluctuations to be eliminated from the calculation. Use of the following checklist will assist in improving the efficiency of the necessary financial calculations:

For All Individuals

  • Personal tax returns for the three most recent taxation years (including attached schedules) (Section 21(a))
  • Notices of Assessment (and Reassessment, if any) for the three most recent taxation years. If misplaced, copies may be obtained directly from the Canada Revenue Agency (CRA) (1-800-959-8281), or the taxpayer or his/her tax preparer may be able to print them immediately from the CRA web site (if authorizations are set up). (Section 21(b))
  • For employees, the payroll statement from the most recent pay cheque showing total year-to-date earnings. If this statement is not available, provide a letter from the company’s payroll department showing year-to-date earnings and the annual rate of salary or remuneration. Overtime, bonuses, commissions, and taxable benefits should be part of the earnings reported. (Section 21(c))
  • If the spouse is a beneficiary of any trusts, a copy of the trust settlement agreement and copies of the trust’s three most recent financial statements. This will typically include “family trusts” established for estate or tax planning purposes. (Section 21(1)(g))
  • Provisions in receipt of Employment Insurance, social assistance, pensions, Workers’ Compensation, disability pensions and any other income (whether taxable or not) a recent statement or letter showing total income received year to date. (Section 21(1)(h))

For Self-Employed Individuals

  • For the three most recent taxation years, provide financial statements of the business, including an income statement, balance sheet and, where available, a statement of changes in financial position or cash flow. (Section 21(d)(i))
  • For each year, a breakdown of all salaries, wages, management fees or other payments or benefits paid to, or on behalf of, persons or corporations with whom the spouse does not deal at arm’s length. In other words, details of all payments made by the business to the spouse, a common-law spouse, to related family members or to other related businesses and corporations, as well as any new “significant other” of the spouse. The details of these payments should include a description of the relationship and the purpose of the payment. These details are important because all such payments are added back to income unless the amount is established as necessary and reasonable in the circumstances. (Sch III, 9)
  • Details of all benefits paid by the business to (or on behalf of) the spouse, to related family parties, as described above. These benefits will include any expenses incurred by the business that provide personal gains. Most of these items are required to be reported on Canada Revenue Agency information slips for tax purposes (T4 or T4A slips); however, our experience is that they are often omitted. Examples of typical benefits that should be disclosed include:
    • personal use of a company automobile;
    • company paid life insurance for personal use;
    • company paid tax return preparation;
    • company paid professional fees for personal services;
    • gifts, prizes or scholarships, and similar payments;
    • personal use of a company property, such as a house;
    • personal use of company inventory.

    Indicate the value of these and any additional benefits. See Appendix II for appropriate information to provide. (Section 21(d)(ii))

  • Indicate the amount of capital cost allowance recorded for each of the three years on buildings owned by the business. (Sch III, 11)
  • Additional information that may be relevant. For example, cash flow required by the business for capital needs (e.g. personal contributions to the business or principal payments on loans to finance working capital or to acquire equipment) may or may not have an impact. (Sch III, 12)

For Shareholders or Others Who Control Corporations

      • Ownership of a majority of the voting shares of the corporation, or having the right to acquire enough shares to obtain control;
      • Direct or indirect control, in any manner whatsoever, through influence which would could result in control of the corporation. This type of influence could be by way of large demand loans, for example, giving the lender control even without having legal ownership because of their ability to demand the loan if certain directions were not followed.For the three most recent taxation years, provide financial statements of the corporation and any subsidiaries or other corporations controlled by the spouse. The definition of control is the definition legislated by the Income Tax Act and includes the following:(Section 21(1)(f)(i))
  • For all corporations controlled by the spouse, for the three most recent taxation years, a statement showing a breakdown of all salaries, wages, management fees or other payments or benefits paid to, or on behalf of, persons or corporations with whom the corporation and any related corporation, does not deal at arm’s length, including any new “significant other.” Please refer to the discussion above for the types of payments and benefits expected to be disclosed. (Section 21(1)(f)(ii))
  • Indicate the amount of depreciation recorded for each of the three years on buildings owned by the corporation. (Sch III, 11)
  • Additional information that may be relevant, and provide such items as you believe appropriate. For example, cash flow required by the business for capital needs (e.g. personal contributions to the business or principal payments on loans to finance working capital or to acquire equipment) may or may not have an impact. (Sch III, 12)

Farmers

For farming businesses, whether incorporated or not, that report income for tax purposes on a cash basis, information sufficient to convert the financial statements to the accrual basis is required. For those farms that participate in the AgriStability insurance program, providing the annual forms for inventories on hand, prepaid expenses, accounts receivable (uncollected sales), deferred income and accounts payable (unpaid expenses) will suffice. These forms are required for the end of the last four years. While financial statements need only be presented for three years, these forms are required for the fourth prior year in order to establish opening balances for the third year. For farms that do not participate in the program, the total amount of each of these balances outstanding at each year-end is required. Without this detailed information, calculations of income may be higher or lower due to timing of payment of bills, and the time of payment may not be within the same business year of the farm.

Federal Child Support Guidelines – Section 21 Excerpt

(1) A spouse who is applying for a child’s support order and whose income information is necessary to determine the amount of the order must include the following with the application:
(a) a copy of every personal income tax return filed by the spouse for each of the three most recent taxation years;
(b) a copy of every notice of assessment and reassessment issued to the spouse for each of the three most recent taxation years;
(c) where the spouse is an employee, the most recent statement of earnings indicating the total earnings paid in the year to date, including overtime or, where such a statement is not provided by the employer, a letter from the spouse’s employer setting out that information including the spouse’s rate of annual salary or remuneration;
(d) where the spouse is self-employed, for the three most recent taxation years
(i) the financial statements of the spouse’s business or professional practice, other than a partnership, and
(ii) a statement showing a breakdown of all salaries, wages, management fees or other payments or benefits paid to, or on behalf of, persons or corporations with whom the spouse does not deal at arm’s length;
(e) where the spouse is a partner in a partnership, confirmation of the spouse’s income and draw from, and capital in, the partnership for its three most recent taxation years;
(f) where the spouse controls a corporation, for its three most recent taxation years
(i) the financial statements of the corporation and its subsidiaries, and
(ii) a statement showing a breakdown of all salaries, wages, management fees or other payments or benefits paid to or on behalf of, persons or corporations with whom the corporation, and a related corporation, does not deal at arm’s length;
(g) where the spouse is a beneficiary under a trust, a copy of the trust settlement agreement and copies of trust’s three most recent financial statements; and
(h) in addition to any income information that must be included under paragraphs (c) through (g), where the spouse receives income from unemployment insurance, social assistance, a pension, workers compensation, disability payments, or any other source, most recent statement of income indicating the total amount of income from the applicable source during the current year, or if such a statement is not provided, a letter from the appropriate authorities stating the required information.
(2) A spouse who is served with a an application for a child support order and whose income information is necessary to determine the amount of the order, must, within 30 days after the application is served if the spouse resides in Canada or the United States or within 60 days of spouse resides elsewhere, or such other time limit as the court specifies, provide the court, as well as the other spouse or the order assignee, as the case may be, with the documents referred to in subsection (1).

Personal Benefits Paid by the Business – Work Chart

Description of Benefit Applicable? Is it reported on personal tax return? If not reported, enter amount $
Personal use of company vehicle (If applicable, also enter original cost $______________ and number of personal kilometres driven per year ___________km. Yes / No Yes / No
Life insurance paid by the business that is owned personally, or that has personal (i.e. not company) beneficiaries, including group insurance policies or privately owned policies Yes / No Yes / No
Personal tax return preparation paid by the company Yes / No Yes / No
Professional fees, including divorce counselling and financial planning services, included in business expenses Yes / No Yes / No
Gifts, prizes, scholarships, etc. received from the business Yes / No Yes / No
Value of free or low rental of a house or apartment for personal use Yes / No Yes / No
Use of inventory bought by the company provided for personal use at no cost Yes / No Yes / No
Sales proceeds received personally for business sales, not deposited to the company Yes / No Yes / No
Other – describe: Yes / No Yes / No
Yes / No Yes / No
Yes / No Yes / No
Yes / No Yes / No

Blair Corkum, CPA, CA, R.F.P., CFP, CFDS, CLU, CHS holds his Chartered Professional Accountant, Chartered Accountant, Registered Financial Planner, Chartered Financial Divorce Specialist as well as several other financial planning related designations. Blair offers hourly based fee-only personal financial planning, holds no investment or insurance licenses, and receives no commissions or referral fees. This publication should not be construed as legal or investment advice. It is neither a definitive analysis of the law nor a substitute for professional advice which you should obtain before acting on information in this article. Information may change as a result of legislation or regulations issued after this article was written.©Blair Corkum